Optimal Relevance in Imperfect Information Games

I analyze how natural language transmits information about the sender's intended actions, complementing previous work on sender-receiver games where natural language transmits information about the sender's type. Unlike... [ view full abstract ]

I analyze how natural language transmits information about the sender's intended actions, complementing previous work on sender-receiver games where natural language transmits information about the sender's type. Unlike solution concepts based on Nash equilibria, here the solution concept takes into account that when language is used as a signal, a message's literal meaning may convey common understandings. I incorporate the semantic feature that only a shared natural language is comprehensible, but the equilibrium meaning depends on the strategic context because the credibility of the message depends on the sender's incentives to be truthful. This setup can be interpreted as a formal pragmatics, i.e., as a setup that studies the actual use of language in specific games. Words are not proof of what they state, so mistrust equilibria are always possible. In trust equilibria, the sender aims at optimal relevance.